Transitions Down, But Managers Expand Role

July 22, 2009 ( - In PLANSPONSOR's 2009 Transition Management Survey, fewer than three-quarters (72.9%) of some 561 plan sponsor respondents said they had completed transition trades during 2008, compared with nearly 90% the year before.

On the other hand, perhaps in view of the tumultuous market environment, more (59.1%) used a transition manager in every case in 2008, compared with just 52.8% who did in 2007, a 12% increase.   Nearly half of this year’s respondents (49.6%) said they had undertaken more portfolio transitions in 2008 than the year before.

In 2008 manager performance accounted for nearly half the transitions (48.9%), up from 44.9% in 2007.   Among other key criteria, rebalancing was much less common – accounting for just 17.9% of the activity, compared with a full quarter of the prior year’s transitions.   Asset allocation shifts were also less common, cited as a reason in just 39.5% of the 2008 transitions, compared with 43.8% the year before.

Smaller Transitions Grow

Additionally, while large transitions continued to dominate the results – accounting for 27.2% of the 2008 transitions – there were nearly twice as many in the less than $25 million category in this year’s results (8.2% versus 4.7% in 2007), and a third more in the $25 million to $50 million category (9.8% versus 7.6%).

In evaluating transition managers, a clear plurality (42.3%) work from a pre-approved list of providers – a list that 41.7% reevaluate annually, while 22.1% do so every two years.   More than a quarter (27.8%) said they “have one firm we always use” for transitions, but that that was, however, down from 32.3% a year ago.   Only about one-in-five put the business out to bid via a request for proposal (RFP), and even fewer – 17.7% – rely on the recommendation of a consultant.  

As for gauging success, while nearly two-thirds (64.9%) of plan sponsors used implementation shortfall (as defined by the T standard) as a cost benchmark, it was cite by nearly all (93.9%) of transition managers.   Explicit costs were second-most cited by plan sponsors (25.5%), and also by transition managers.

Looking ahead, 37.9% of survey respondents anticipate fewer transitions in 2009, though nearly as many (31.6%) expect to do more, and 30.5% are expecting the number of transitions to remain unchanged.

PLANSPONSOR’s 2009 Transition Management Survey is online  HERE